Samwick Coauthors Social Security Reform Proposal

A nonpartisan Social Security system reform plan, drafted by three Social Security experts from across the political spectrum, including Professor of Economics and Director of the Rockefeller CenterAndrew Samwick, was recently released. The proposal demonstrates that, despite the contentiousness of the recent Social Security debate, compromise is possible. The plan has been reviewed by the Office of the Chief Actuary at the Social Security Administration (SSA), which concluded that it would "easily satisfy the criteria for attaining sustainable solvency."

Andrew Samwick, Professor of Economics and Director of the Rockefeller Center. (Photo by Joseph Mehling '69)

The reform package contains four primary elements: a gradual reduction in future benefits; an increase in the payroll tax cap; an increase in the retirement age; and the establishment of personal retirement accounts. The plan puts great emphasis on fiscal responsibility - borrowing less from general revenues than any other plan that has been scored by the Social Security actuaries in recent years.

In addition to Samwick, the authors of the report are: Jeffrey Liebman, professor of public policy, Harvard University's Kennedy School of Government and special assistant to President Clinton for economic policy (1998-99); and Maya MacGuineas, director, Fiscal Policy Program, New America Foundation and Social Security advisor to Senator John McCain's 2000 presidential campaign. Samwick was chief economist, staff of President Bush's Council of Economics Advisers (2003-04).

"Despite the fact that we all came into to this discussion with different priorities, the compromises in the plan demonstrate that there are a range of policy options that can gain support from across the political spectrum," says Samwick. "The differences that do exist can be bridged through thoughtful and serious negotiations by well-intentioned policy makers."

MacGuineas says, "We hope to stimulate serious and substantive discussion in Washington about the particulars of how to fix Social Security and how to achieve bipartisan compromise. While Social Security reform hit a political roadblock this year, the issue is not going away and the question of how to rebalance the nation's retirement system must be addressed."

More specifics on the Liebman-MacGuineas-Samwick plan include:

The establishment of personal retirement accounts (PRAs) to be funded by a combination of diverting 1.5 percent of the current payroll tax and requiring workers to contribute an additional 1.5 percent of payroll into their PRAs.

Raising the cap on earnings subject to the Social Security payroll tax so that 90 percent of earnings were taxed.

Gradually reducing benefits to keep the costs of the traditional system to what can be afforded by the 12.4 percent payroll tax. The benefit cuts are structured so they would be larger for high earners than for low earners.

Gradually increasing the normal retirement age (currently scheduled to reach 67 in 2017) to 68 and the earliest age at which retirees could collect Social Security benefits from its current 62 to 65. People would be able to tap into their PRA assets beginning at age 62.

To minimize risks and administrative costs, accounts would be tightly regulated and full annuitization of account balances would be required.

The plan includes various other components designed to maintain adequate benefit levels for low-income households, widows and widowers, and the disabled.

"The advantages of this plan are straightforward," says Liebman. "It achieves sustainable solvency, maintains retirement income levels, and is the most fiscally responsible plan released in recent years."